Does your current loan stack up?
Life changes all the time, your income may have changed, your expenses probably have too, and your financial goals could also be different. It’s important to periodically check that your home loan still suits your needs and is supporting your longer-term finance strategy and goals. If you haven’t reviewed your home loan in the last 18 months, there is also a chance you could be paying a “loyalty tax” to your current lender.
Looking into a refinance is an opportunity to understand what is out there and to assess whether your current loan is still right for you. If it’s not, then it may be time to refinance. This may be easier said that done, with thousands of loans on the market and fine print forever, making sure you know what you’re comparing isn’t easy, unless you have a professional, like us, to guide you.
If you are looking to switch, this guide sets out some key factors for you to consider.
Why should you refinance?
As the market and your circumstances change, the home loan that was right for you then, may no longer be one that suits you now. You may be looking to save a bit of money, consolidating your debt, or looking to unlock some equity you’ve built up in your home. Whatever your reasons, it’s a good idea to see what’s out there on a regular basis.
- Saving money by getting a better deal: Obviously the first question to ask is could you be paying less? A loan with lower repayments whether due to lower interest rate or lower fees can often be the simplest way to reduce your repayments. It means you can unlock a little more spending money, or better still, building a home loan buffer and ultimately paying your loan off sooner.
- More Features: It’s not always about interest rates. Sometimes, loans with the lowest rates may sacrifice features that are not only handy, but also save you money over time. For example:
- Offset accounts: This is a separate account that lets you use the balance to offset the principal on which your interest is calculated. Simply having your salary deposited into this account can take months if not years off your loan.
- Flexible payments: Paying extra into the loan when you can, it is a great way to build equity, shorten your loan and save interest, helping you get ahead.
- Redraw: This lets you easily access any extra funds you’ve deposited into your loan. Before you choose between an offset account and redraw, it’s important to have a conversation about your long term plans for your property as there are some huge potential savings, and also a couple of pitfalls we guide our clients around.
- Flexible rates: Depending on what you think rates might do (move up, down, or stay the same), you can choose the type of loan that could save you money when they go down (variable) or protect you when they rise (fixed). Of course, each lender will have its own credit policies, terms and conditions, and it is important to consider the effects of these when considering a refinance.
- Refinancing to renovate: One of the most common reasons to refinance is to increase you home loan to fund renovations. If you’ve owned your home for a while and it has increased in value, you may be able to use this equity to fund your improvements. The bonus of a good renovation is the potential to add value to your property. With smart structuring, we can help you have the funds ready to go, but not costing you interest until you use the funds.
Why have us on your side?
The trick to refinancing is knowing what’s out in the market and understanding what your options are.
Dealing with lenders, evaluating loan rates and features and matching them to our clients circumstances, goals and plans is where we make the magic happen.
We have an up-to-the-minute understanding of the market, strong relationships with lenders and offer a breadth of knowledge and expertise for you to draw on. Not only will we help you find the right loan, but we strive to make the whole application and approval process much easier for you.
The first thing we do is to get a picture of your goals and plans and then a snapshot of your current loan and your personal circumstances. This will enable us to give you an accurate idea of your current costs; identify any potential savings from rates, fees, or features, and re-evaluate your borrowing potential. From here we can then help find the right loan for you.
There is no shortage of different loan products for you to choose from, it’s a matter of finding the right one for you. Our access to lenders and the latest loan product information means we can identify the loan that works for you and get the new finance solution in place simply and quickly with minimum fuss.
Why not go straight to a bank?
Of course, you could go to a bank directly, but this means less choice. As of 2022, fewer than 30% of borrowers choose this option.
Firstly, who do you choose? Then, which of their products is right for you? What about other lenders, building societies or credit unions?
With so many options out there and, with regularly moving interest rates and new products, navigating an ever-changing market can be overwhelming. Navigating this and making the complex simple is our superpower. We know the lenders, we understand their products, and we keep abreast of changes in their policies, products, and their different lending appetites.
We make choosing what is right for you straightforward. We do the heavy lifting for you, helping to speed up the application process, and you benefit from a bespoke service experience.
What has changed in your life?
When you’ve looking at refinancing, it is important for you to let us know what has changed in your life and also of any upcoming changes that you may foresee.
Your income may have changed, hopefully, it has increased, but it may also have dropped. Your bank balance could also have significantly changed thanks to an investment, business interest or an inheritance. Maybe your relationship status has changed, or you may be planning to start a family. Your living expenses may have increased, or you may have taken out other loans or credit cards. Has there been a change in value of your property since you took out your current loan?
All these factors will influence your new borrowing potential.
What mortgage type suits you now?
There is a lot more to refinancing loans than just finding more attractive rates and fees. Obviously, a low rate is important, but it is not everything.
Your new loan may be a different type to your current loan and even offer features that will make managing your mortgage easier. The devil is in the detail and there are many subtle differences between each lender’s loans. We’ll help you choose the most suitable option to meet your needs.
Understand the costs of refinancing
It’s important to understand what costs are involved in changing lenders so we can make sure you’re ahead after any costs.
We’ll do an analysis of the costs and benefits of refinancing for you. Some of the fees and costs to keep in mind are:
- Discharge fees: A lender may charge you a termination fee
- Break costs: If you have a fixed rate loan you could be charged a break cost to exit your loan early
- Application fees: This is often charged on settlement of the loan
- Valuation fees: A lender can charge this fee to have your property independently valued
- Settlement fees: Charged once the loan is settled
- Registration fees: A government fee charged when you switch your mortgage to a new lender – this amount varies from state to state
- Lender’s Mortgage Insurance (LMI): If your new loan is more than 80% of your home’s value, a refinance needs to be very carefully considered. There needs to be a compelling reason to consider paying LMI a second time.
Lenders vary and can be tricky to get clarity on without expert guidance. When talking through your situation with us, we can help you understand what it will cost to end your current loan to begin the new one.
